Take not(ic)e – the correct way to interpret a unilateral notice
09 August 2019
In Stobart Group v Stobart and Tinkler, the Court of Appeal clarified the approach to interpreting a unilateral notice given under a contract.
Stobart and Tinkler had sold Stobart Rail to Stobart Group under a share purchase agreement which included two related, but distinct, notice provisions about tax:
- Paragraph 7 required Stobart Group to notify the sellers of any potential claim by HMRC against Stobart Rail.
- Paragraph 6 provided that the sellers would have no liability for “tax claims” made by HMRC against Stobart Rail unless Stobart Group had given written notice of such a claim on or before the seventh anniversary of completion.
Stobart Rail incurred a tax liability and Stobart Group tried to make a tax claim. The sellers argued this could not succeed because no valid paragraph 6 notice had been served. Stobart Group relied on a letter it had sent, before the deadline, which only expressly referred to paragraph 7. Stobart Group argued that this, together with an earlier draft letter that had been sent to the sellers, created a contextual expectation that a paragraph 6 notice would be made.
The Court of Appeal held that the letter sent was not a compliant paragraph 6 notice for the following reasons:
- The approach to interpreting unilateral notices is an objective one – you must ask how the reasonable recipient would have understood the notice. The letter did not reference a “tax claim” or paragraph 6.
- Context is important but common subjective intent must be clear – here there was no evidence of it existing. Further, someone objectively reading the letter, with knowledge of the agreement, would see it referenced paragraph 7, not 6.
- Notices under contracts are supposed to be clear and sufficiently formal so as to provide certainty. Referencing the possibility that a claim may be pursued is not enough.